If currency market is rigged, might gold be too?

The unsigned commentary appended here from today's Asian edition of The Wall Street Journal, headlined "Geithner's Yuan Sense," acknowledges that the currency markets are not free -- GATA would call them "rigged" -- because "monopolist central banks control the supply of currencies in modern economies." Would it much of a step beyond that to acknowledge that the gold market might be rigged too because "monopolist central banks" also control the supply of gold and gold derivatives, at least for the time being?

Treasury Secretary Timothy Geithner has taken a lot of heat for his U.S. bank bailout plan. But at least he's cooled another controversy for now: a possible currency spat with China.

In a report to Congress this week, Mr. Geithner declined to label Beijing a "currency manipulator" over its allegedly over-cheap yuan. This is an about-face for Mr. Geithner, who stated in written testimony during his January confirmation hearing that the Obama Administration "believes China is manipulating its currency" and that he wanted Treasury to make "the fact-based case that market exchange rates are a central ingredient to healthy and sustained growth."

We'd like to think Mr. Geithner changed his mind after considering certain realities. To wit: There's no such thing as a "market exchange rate" since monopolist central banks control the supply of currencies in modern economies.

With U.S. inflation fears already stoked by a trillion-dollar stimulus and a near-zero fed funds rate, now is exactly the wrong time to weaken the dollar further. In a time of economic turbulence, Beijing's stable yuan-dollar exchange rate policy since July has offered the two trading partners some welcome stability.

Whatever his underlying views, Mr. Geithner's report throws a few bones to those in Congress and U.S. industry who mistakenly think dollar devaluation vis-à-vis the yuan will keep low-value-added manufacturing from heading to China. The report justifies its conclusion by noting as signs of progress supposed indications that Beijing wants a more "flexible" exchange regime and a $586 billion Chinese stimulus proposal; it also allows that the yuan is still "undervalued."

This concedes the basic point on the "ills" of the current exchange rate and is the kind of language the Bush Administration used to placate dollar devaluationists in Congress like Sens. Chuck Schumer and Lindsey Graham. But at least it forestalls for the moment any more attempts to punish China for its yuan policy, such as the 27.5% tariff proposed by Messrs. Schumer and Graham in 2005.

Perhaps Mr. Geithner really did see the monetary light after his January misstep. Or maybe he just didn't want to open this Pandora's box with so much else on his plate. Either way, his new yuan sense is one change that fans of monetary stability can (sort of) believe in.
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